Farm income: Good for now

Net farm income is expected to increase 14.6%, to $128.2 billion in the current, 2013 calendar year, according to Kevin Patrick, an agricultural economist with USDA's Economic Research Service.

Speaking at USDA's Agricultural Outlook Forum Thursday, Patrick said that some of the underlying factors are strong exports and a dollar that a has weakened since the financial crisis of 2008.

And debt to asset ratios for all farms remain at historic lows, with agricultural assets valued at $2.3 trillion and debt at $238 billion.

But another economist speaking about the outlook for farm income, Terry Barr, with CoBank, laid out several reasons why current income levels may not be sustainable.

"We're probably not going to be able to hold $125 billion in [net] cash income, but agriculture is still a strong sector of the economy going forward," Barr told one of his listeners.

Barr said he's trying to separate unusual factors in today's high farm income from long-term changes that will be "the new normal."

None of the economists speaking about farm income at the session in Arlington, Virginia expect a correction in income to bring the debt problems of the 1980s, mainly because farmers who have bought land aren't highly leveraged.

But Barr did cite some similarities between the boom years of the 1970s and today. In 1973, the monetary system went to floating exchange rates, which led to a 30% decline in the value of the U.S. dollar, Barr said. Since the financial crisis of 2008, the U.S. dollar has declined by 27%.

"So some of this runnup in commodity prices was due to realignment in currency prices," he said.

Much of the increase in prices has also been driven by supply issues, not demand, he said. In four or the past five years there have been production shortages in major agricultural regions of the world.

Soybean and corn prices have also been tracking volatile oil prices, but corn demand for ethanol has topped out.

"I think the delinking process is going to occur over the next five years, or so, depending on what we do with the renewable fuel standard," Barr said. "The energy environment is going to be vastly different over the next five years than it has been over the previous five years."

As franking brings even more domestic oil and natural gas into production, energy prices are likely to be falling.

Barr said later that he's not making predictions, just raising issues that need to be watched.

And, he told his audience Thursday, ""We're not going to find a new normal if we have a drought in the U.S. this year."